Economic substance and arm’s length – Mexico

taxes accounting business

10/15/19 – International Tax Review

By Oscar Campero and Yoshio Uehara of Chévez Ruíz Zamarripa y Cía

Mexican taxpayers are obliged to determine their taxable income and authorised deductions derived from related party transactions considering the prices that would have been used in comparable transactions with or between independent parties. This is, in Mexico the arm’s length principle is recognised for tax purposes.

In the previous administration (2), the transfer pricing department within Mexico’s Tax Administration (“SAT” for its acronym in Spanish) had an important role, from handling a mere documentation compliance matter to acting as a strategic risk assessment tool for multinational companies (“MNEs”).

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